Smart Business: Trust, But Verify - Part 2
May 1, 2006
In last month's article, I dealt with the white-collar segment of construction industry theft represented by embezzlement. Now, let's turn our attention to the more common problems associated with the theft of tools, equipment and materials, which can be thought of as construction's “blue collar” crime wave.
So common has it become that most estimates peg construction theft to surpass $1 billion in value each year. I suspect few of you reading this have not been victimized by “shrinkage” at one time or another. There are two aspects to the problem. One is thievery from the outside world, which can be minimized with a variety of security precautions. The other is internal theft by your own employees. This is trickier to deal with because not only is this a security issue, it also involves sensitive issues of employee relations, employee rights and our legal system.
Quite a few contractors are all too willing to turn a blind eye to petty theft in their organizations. Some rationalize tools or inventory shrinkage as just another cost of doing business - and cheaper than replacing any good worker they might suspect of being a thief. Insurance may cover the cost of replacement, and it can be hard to find out who exactly is the thief or thieves. (Years ago, I published a report from CNA Insurance saying that around 40 percent of all construction claim dollars are due to theft.) Rare is the contractor who treats internal theft as a bona fide crime and pursues the arrest and prosecution of perpetrators.
This attitude is understandable from a business perspective, but contractors who are too cavalier about theft should not be surprised when it proliferates in their company. Internal theft feeds upon itself. When they see one thief beating the system, more timid employees gain courage to supplement their incomes.
Here are some tips from security experts and contractors with tool security systems to prevent losses.
- On large jobsites, set up a tool crib with expensive tools under lock and key. Workers must sign them in and out, and sign a document that holds them responsible for the cost of replacement if tools are lost or stolen.
- Record or create serial numbers for expensive tools and equipment, and paint hand tools with a standard color and make sure your company's name is written or embossed on them. This will enable your workers to easily distinguish their tools from that of other crews when working in close quarters on a crowded jobsite. It also enables police to identify the owners if they manage to recover stolen property.
- If you provide lockers for your em-ployees, make unscheduled locker inspections part of your written company policy.
- If you have a warehouse, authorize entry only to employees who work there. Devise a pass system and badges for others who need to go inside on occasion. Forbid them to take lunch boxes or empty packages
External ThreatsTheft of small tools and equipment tends to be an inside job and a relative nuisance compared to pilferage of larger construction equipment ranging from drilling rigs to backhoes to generators and anything else of value - and virtually everything used at a construction site has value. According to LoJack Corp., a marketer of tracking and recovery systems for stolen vehicles and equipment, the most frequently stolen items are loaders, skid steers, generators, air compressors, dump trucks, welders and un-tethered trailers. Theft of valuable equipment may reverberate in significant job downtime that, in some cases, can add up to more than the cost of the equipment itself.
It's safe to assume that most construction thievery comes from people who have worked in construction, know what's valuable and where to fence stolen goods. Some get sold to unscrupulous dealers or contractors who know they're buying hot merchandise, but pilfered construction equipment also gets peddled to legitimate used equipment dealers who don't know that it's hot property - or don't want to know. Just as with their auto-theif counterparts, sophisticated equipment thieves know how to alter serial numbers and produce counterfeit ownership documents.
According to the National Equipment Register, only about 10 percent of stolen construction equipment ever gets recovered. So once it's gone, don't ever count on seeing it again. This truly is a case of an ounce of prevention being worth a pound of cure. With that in mind, here are some tips to prevent or minimize equipment theft:
- Don't assume that just because there's a fence or locked door around the jobsite that all your property is safe. That's just the first line of defense - and easily breached by professional thieves. You still need other ways to secure valuable equipment.
- Re-key expensive motorized equipment. Most construction equipment has universal keys that are easily duplicated by thieves.
- Make it a point to park/position equipment in highly visible areas away from shadows, nooks and crannies.
- For high-ticket equipment, consider investing in a GPS tracking system.
- Disable heavy equipment over-night by taking out its battery or locking its steering wheel. Equipment burglars have no trouble starting motorized equipment via universal keys or hot-wiring just like auto thieves. Consider investing in other anti-theft devices such as fuel cutoffs, hydraulic bypasses, track locks or alarms.
- Post signs in the vicinity of the jobsite encouraging neighbors and passersby to report suspicious activity. Try to get the general contractor or owner to offer a reward for arrests and convictions.
- Keep meticulous serial number and ownership records of big-ticket items. Take pictures of them.
- Record your own identification numbers on equipment in two places, one obvious and one hidden. In your records, be sure to keep track of where the hidden number can be found.
- As with hand tools, paint your equipment a distinctive color and include your name or logo.
- If something does get stolen, report it as soon as possible. Insurance industry sources say most stolen equipment that does get recovered is found within 100 miles from the place it was stolen. Beyond that, the chances of recovery go down to almost nothing.
Finally, don't become part of the problem by purchasing stolen equipment. Don't buy anything with missing serial numbers or when anything else about it smells fishy.